The 2006 Department of Defense’s Report on Predatory Lending Practices, found that military families have characteristics that can make them a market of choice for predatory lending. For example, 48 percent of enlisted Soldiers are younger than 25 years old, typically have limited financial education, and perhaps most significantly, they receive a steady paycheck. In addition, the military expects servicemembers to pay their just debts.
The DoD study found that predatory lending practices are prevalent around military installations, or through the use of on-line marketing techniques. Prevalent predatory lending around military communities include: payday lending, internet lending, car title lending, military installment lending, rent-to-own programs, tax refund anticipation loans, and coercive collection actions.
While the predatory lenders targeting the Fort Irwin community are not lurking at the front gate, they are situated in nearby cities and many are accessible online. Predatory lending companies may be identified by: their high interest rates and fees; loan flipping or repeat renewals that ensure profit without significantly paying down principal; fraud or deception, and; requiring waivers of meaningful legal protections for the consumer.
The DoD report also found that predatory lenders seek out young and financially inexperienced borrowers, who have bank accounts and steady jobs, but little savings and flawed credit. The predatory lenders usually make loans based on access to a person’s assets (through checking accounts, car titles, tax refunds, etc.) and guaranteed continued income, but not on the ability of the borrower to repay the loan. Most predatory businesses take advantage of the borrower’s inability to pay the loan in full when it is due and encourage extensions through refinancing and loan flipping.
In an attempt to prevent the abusive practices of predatory lenders towards the military community, Congress established specific requirements regarding the terms of consumer credit contracts extended by a creditor to a servicemember or the dependent of a servicemember.
The Military Lending Act is contained within the 2007 National Defense Authorization Act and became effective on Oct. 1, 2007. The Act offers significant protections for active duty military personnel and their families.
Some limitations on credit transactions with servicemembers and their dependents include:
- A 36 percent cap on the annual percentage rate for consumer loans
- Requirement of clear and uniform disclosures of fees, charges and APR on loans
- Ban on rollovers, renewals, repays and refinance to a borrower by the same creditor, using proceeds from other credit extended
- Ban on mandatory arbitration provisions
- Ban on requirement to use an allotment or other method to access a financial account in order to repay an obligation
- Ban on creditor use of a check or other method to access a bank account or using a vehicle title as security
- Ban on prohibitions or penalties for early repayment of a loan
- Ban on contract clauses requiring waivers of legal protections
Servicemembers can take steps to protect themselves from the abuse of predatory lenders. The 2006 DoD report recommends alternatives to payday loans and high interest installment loans through Military Aid Societies. Military Aid Societies have established special programs to assist servicemembers trapped in high cost loans. One such Military Aid Society is Army Emergency Relief, which can provide an interest-free loan, a grant, or part loan and part grant in certain emergency situations.
If you are interested in debt management, Army Community Services provides assistance in the management of personal finances, budgeting, and savings.
If you have any questions concerning these matters, call the Legal Assistance Office for an appointment at 380-5321. Our hours of operation are Monday through Friday, 8 a.m. – 4 p.m., Thursdays 1 – 4 p.m. The Legal Assistance Office is located on Barstow Road in building 288.